Capitalist Corner

January 09, 2007

What's Apple Thinking?

Undoubtedly, the new iPhone looks very cool. Very, very cool. But just as my technolust was peaking and I was turning on some Marvin Gaye in anticipation of a stop by the Apple Store, an inconvenient fact intruded: It's exclusive to Cingular.

Why?

What benefit does Apple derive from losing the contract-captive audiences of Verizon, T-Mobile, and Sprint/Nextel? Where's the sense in that? And it's not like most of us can just switch over to Cingular -- I've got years left of indentured servitude to the Big V. Moreover, I wouldn't jump ship anyway. Unlike with mp3 players and laptops, the quality of Apple's product is not the ultimate arbiter in its usefulness here. I won't be too happy with iPhone if my godawful network -- Cingular doesn't rank first in customer satisfaction in any region of the US -- keeps dropping my calls.

So what Apple has done is ensure the majority of cell phone users can't initially buy their phone, locked themselves in with arguably the worst service provider, and created the possibility that many will switch to Cingular to buy the iPhone only to loathe Apple for luring them to an inferior network. This seems an, uh, odd strategy. Can someone enlighten me as to its merits?

Comments

Different wireless providers operate with different technical networks. A phone that works with Cingular isn't going to work with Verizon.

And perhaps more importantly, I'd guess Cingular is paying a substantial subsidy for the privilege of exclusive service. Apple sells the iPhone to Cingular for $800 per, and Cingular picks up $300 of the tab, so the cost to the consumer is only $500.

Unlike in Europe, here in the US basically no phones are sold separately from the wireless providers.

further, while the DC market perhaps doesn't matter too much to the bottom line of apple, it's my understanding that only Verizon networks enable you to keep service while in the DC subway system.

having found this out late, i can only reliably report that cingular sure doesn't work there.

why apple wants to piggyback on a service that is clearly at a big disadvantage in a relatively big and rich market is also a little beyond me.

and, off-thread, nice post on the evil klein.

joshb

Posted by: joshb | Jan 9, 2007 2:51:07 PM

It's a quad-band GSM phone, so the same device will work with Cingular and T-Mobile in the US, almost all of the carriers in Europe, and several in Asia (eventually, given network/software issues to support some of the crazier features, like the visual voicemail). A CDMA version is probably possible, but has less worldwide appeal. So having picked GSM over CDMA, Cingular is a much bigger outfit for this kind of thing than T-Mobile is.

Posted by: Nathan Williams | Jan 9, 2007 2:53:08 PM

The thing I'm curious about is why in the US cellphones are always sold tied to a carrier, while in Europe and Asia, cellphones are always sold unconnected to a carrier...

maybe Apple was persuaded by CWA's campaign to let people know that Cingular is the only fully union cell phone provider. See http://www.cwa-union.org/cingular/

Posted by: don't forget | Jan 9, 2007 3:13:46 PM

So what Apple has done is ensure the majority of cell phone users can't initially buy their phone, locked themselves in with arguably the worst service provider, and created the possibility that many will switch to Cingular to buy the iPhone only to loathe Apple for luring them to an inferior network. This seems an, uh, odd strategy. Can someone enlighten me as to its merits?

I've never quite understood the Apple adoration in some quarters of the technosphere (for lack of a better term). I had an iPod for years, but a few months ago the battery began to fail; it just wouldn't go from fully charged to shutting itself off in 10 minutes. I paid $40 for a battery-changing kit to change the battery myself, but I didn't even manage to get the case off. I could have got with the official option of mailing the iPod off to some Apple outlet in another state, but that seemed like sending good money after bad. I decided to buy a (much more basic) model from another manufacturer for only a little more money than changing the battery would have cost. A more basic model that uses AAA batteries.

Anecdotes are not data, of course, and I'm not the average user; my iPod has been a digital voice recorder first and an MP3 player second over the past year, which is what I replaced it with. Still, though, every tech company is just one monopoly away from being the Sirius Cybernetics Corporation, and Apple is no exception.

From what I understand, a more basic level that what these folks above are talking about, I've heard that Apple doesn't want to be a service provider, they just want to create the hardware. So, they need to set up a deal to have someone run the service. I guess this is different than with other Apple products like the I-Pod where they also produced the store to buy songs.

Why they settled for one company versus many might have had something to do with this.

Part of the reason is apparently some of the features of the phone require special features on the network. "Visual Voicemail" for example which shows you on your phone who you have voicemail from.

Yeah, the basic features of the phone would work with any GSM-network provider, like T-Mobile, but if the network doesn't sport the extensions to tell the phone who you have voicemail from, that feature won't work. There may be other features as well.

So Cingular may be crappy (I don't know, I've never used them), but apparently they have added richness to their network that allows some of the advanced features of the Apple iPhone.

I'm sure Apple will be happy to sell their product to customers of other carriers - but those carriers are going to have to make sure all the features of the phone work as Apple advertises.

Don't worry, Ezra - iPods sucked at the start, despite being awesome. They, too, had limited availability (Mac-only) and were very expensive. Eventually they became so cheap and awesome and Windows-friendly everyone has one and some people have three.

I predict the Apple iPhone will follow a similar route. Give it 5-6 years and they'll be everywhere.

In Europe they all use GSM. Here we still have some carriers using CDMA so you have to get the cell phone that works with your carrier. Why design a cutting edge phone to work with old technology (CDMA)?

Posted by: ouiski | Jan 9, 2007 3:56:02 PM

"Part of the reason is apparently some of the features of the phone require special features on the network. "Visual Voicemail" for example which shows you on your phone who you have voicemail from."

GSM is a world-wide technology and is more feature-rich than CDMA. European and Asian networks are generations ahead of ours. Apple will have a global market for these devices.

Posted by: MarvyT | Jan 9, 2007 4:46:42 PM

You guys are putting too much faith in the mobile phone companies providing an open marketplace. That isn't the case. They all want to get a piece of the mobile entertainment pie, and would much rather sell you a ringtone than let you load an MP3 on your phone. That sort of functionality has generally only been available on US carrier phones at the expensive smartphone level.

This is changing, but there's no doubt that Apple's offering is aimed at consumers, not businesses, and that its goal is to make digital media available in a way that won't make the carriers any money. Smaller carriers are the ones who are going to be most interested in trading this potentially lucrative digital media revenue stream for a chance to use Apple to increase their marketshare. As a result, Apple was destined to end up with whichever of the second-tier carriers offered them the best deal.

The above was the common wisdom when the ROKR came out, anyway. I wouldn't be surprised if the iPhone's network home is a combination of the dynamic described above and the fact that Apple had an established relationship with Cingular from the ROKR.

As one of those benighted T-Mobile customers (I love that with their prepaid plan, I basically get a year of service for $100, since I just don't gab that much), I can say right now: bad coverage isn't a bug, it's a feature. "You're breaking up.. let me call you right back."

Am I the only person who's generally happy with T-mobile?- they had the best plan configuration for me and their customer service has been excellent for the five-plus years I've been with them. There are dead spots here, but they're in hillier suburban areas and I don't worry about them too much, given the topography.

Posted by: latts | Jan 9, 2007 5:20:27 PM

Cingular is vastly superior to Sprint, at least. Most people I know would rate them as 2nd behind Verizon in service, but because they're cheaper, they're probably near the same overall value as Verizon. Just to respond to Ezra's Cingular bashing. I don't really like IPods (Creative products are a better value), and I'm tired of Apple people, so I couldn't care less about the phone.

Posted by: spike | Jan 9, 2007 5:20:51 PM

T-Mobil rocks!

I was with Sprint previously and it really sucked. Sucky suck suck sucked.

Posted by: Fred Jones | Jan 9, 2007 5:23:45 PM

As Adam points out above (Jan 9, 2007 12:54:00 PM), there are enhanced features in the iPhone that need network cooperation. This probably required some network changes, and none of the big providers - Cingular, Verizon, Sprint - would commit to that kind of thing without guaranteed revenue. I would bet there was lots of Apple/cellco negotiation with Jobs &co eventually deciding Cingular was the best bet.

I'm a Californian transplanted to DC, and surprisingly at peace with it. Or at least I was till it started getting colder. Job-wise, I'm the staff writer for The American Prospect. In the past, I've written for the Washington Monthly, the LA Weekly, The LA Times, The New Republic, Slate, The New York Sun, and the Gadflyer. I'm a damn good cook. No, really. Want to know more? E-mail, I'm friendly.